Market Tells

Market Tells

A “tell” is a sign or a signal, intentional or not of an outcome. In gambling players watch each other for tells; signs of the strength or weakness of a hand. For example, my old roommate was very casual about playing cards until he got a good hand and then his mannerisms became more serious or formal. An old co-worker’s voice got higher every time he tried to bluff. I find this funny because when he would try to ruse someone on the phone or in person – the same thing happened – his voice pitch got higher.

Markets too have tells that suggest something is happening. In 2009, ‘The Los Zetas Cartel’ began to emerge. They were defectors from the Mexican Special Forces, mostly deserters, who sold their skills to the highest bidder. The highest bidders were often, the Gulf Cartel, “The Company” and the Sinaloa Cartel. But as it can happen the very successful hired guns, wanted territory of their own and began a bloody war with their former client so Los Zetas could have a territory of their own. They took on their former clients who had developed a power base over the years through family ties and compromised officials – some compromised willingly, some not so willingly. Not content with smuggling drugs – they used their skill sets and added kidnapping, extortion and human trafficking. They also expanded well beyond Mexico as far north as Chicago, into Africa, Europe and Central and South America. Miguel Trevino, who took over after the death of Z-3 Heriberto Lazcano a former special forces officer, ran a tight operation and was ruthless and very well organized.

As the profit grew and grew, Trevino’s wife Zulema, moved from a modest 2 bedroom house to a 70 acre ranch on which Trevino began collecting horses. In particular American Quarter horses. He bought the best bloodlines – period. No price was too high for what he wanted. He used many front men and businesses to buy the horses and expand his collection. In 2010 he, through a front man, purchased Dashin Follies for $875,000 – the highest price ever paid for an American Quarter horse.

The horse’s names were laundered – excuse me – changed, which is very unusual but it made the horse hard to trace. New names were used like “Break Out The Bullets” and “Big Daddy Cartel” and several were owned through a front company called “Fast and Furious LLC” a chilling homage to the failed gun running operation directed by the DEA that ended up getting a border agent killed.

Their presence in the American Quarter Horse market was felt throughout North America. The prices for American Quarter Horses were sky rocketing (a tell) even during the second worse economy is US history. It is interesting to look back and see the bull counter trends in certain markets when the economy was sinking. By the end Trevino had amassed over 400 horses – a strong tell that money was no object and the American Quarter Horse market was not only a source of Trevino’s desire but a way in which to launder the massive profits made by The Zetas Cartel.

The tell was simply a massive counter trend in American Quarter Horse prices and the small market dominated by one player. The counter trend defied logic, as well as the greater macro market and economic forces.

At any time you see money laundering, you will see these exact forces occurring – also known as outliers or tells.